Cathay Pacific told CNBC Friday it will not be participating in Air China's 6.5 billion yuan ($952.2 million) share issue.
"Short and long answer is no," said a Cathay Pacific spokesperson.
Air China announced the the private share sale late Thursday, saying proceeds with go towards strengthening its capital, lowering debt levels and developing its cargo business and for future acquisitions.
The deal would reduce Cathay Pacific's stake in Air China to 17.1 percent from the current 18.1 percent. Cathay would have had to spend $110 million to maintain the 18.1 percent stake.
News of Air China's share sale, which involves selling up to 585 million new A-shares for about 5.6 billion yuan and 157 million H-shares for HK$1.04 billion, sent the carrier's stock jumping 9.31 percent on Friday.
Air China's state-owned parent will subscribe to 157 million A shares for not less than 1.5 billion yuan and a wholly owned unit of the parent will subscribe to all the new H-shares at not less than HK$6.62 each.
Analysts said the plan would enhance the company's book value and lower its interest expenses.
Air China, the biggest of the country's three major airlines including China Southern and China Eastern Airlines, said in a statement it would use the proceeds of the new share issue for working capital and to help lower debt.
After the deal, Air China's gearing could fall by 4.58 percentage points to 71.8 percent from 76.4 percent, it said in a statement to the Shanghai Stock Exchange.
If the company used all the money raised from the share issue to repay debt, it would cut its interest expenses by 345 million yuan a year, Air China added.
The stock is set to open at HK$7.40, the highest since March 2008, as trading resumes after being suspended on Feb. 26 pending a share sale announcement.
It is the second Chinese airline to announce fundraising plans in less than a week after rival China Southern Airlines said it would issue $1.6 billion worth of shares to reduce its debt.
A recovery in domestic and regional traffic has rekindled investor interest, allowing Chinese carriers battered by the global financial crisis to tap the market to reduce debt, and fund fleet expansion and acquisitions in response to growing competition.